1 Variable costs vary within the relevant range of activity a in total b per unit 2 Within the relevant range of activity cost assumptions are reasonably valid 3 Fixed costs 4 a per unit become progressively larger as the level of activity increases b generally include rent and supervisor salaries c should not be expressed on a per unit basis when making decisions d remain constant in total within the relevant range of activity costs vary in total in direct proportion to changes in activity level a variable b differential c d opportunity fixed 5 Sales revenue minus variable costs is contribution margin 6 A contribution margin income statement is prepared primarily for external reporting purposes a can assist with management decision making b c separates costs into their fixed and variable components d reports both gross margin and net income 7 Webster LLC sells its product fro 20 per unit Variable costs are 11 per unit and total fixed costs are 35 000 The company sells 8 000 units per year Webster s contribution margin ratio is 45 8 The formula to calculate the variable cost per unit using the high low method is a y a bX b difference in activity divided by difference in total cost c d difference in total cost divided by difference in activity total cost minus total fixed cost 9 Fixed costs remain constant in total over the relevant range of activity 10 Step costs a may be either step fixed or step variable b are always treated like variable costs when doing cost analysis c are fixed over some range of activity 11 is based on the ride over run formula for the slope of a straight line a The high low method b A scattergraph c Least squares regression 12 Why is it important to analyze mixed costs a Within the relevant range of activity variable costs do not change b Managers must know how costs change to make decision c Managers need to know how much of a cost is variable and how much is d Within the relevant range of activity fixed costs change as activity fixed changes 13 The unit contribution margin a b c d is the different between total sales revenue and total variable costs tell how much each additional unit provides to cover variable costs tells how much each additional unit contributes to profit is valid both within and outside of the relevant range 14 Which of the following statements are true a The relevant range of activity is approximated by a straight line b Outside of the relevant range cost behavior conclusions may not be valid c Within the relevant range of activity fixed costs remain constant in total d Within the relevant range of activity total variable costs do not change 15 True or False Variable costs remain fixed in total within the relevant range 16 A scattergraph gives a visual representation of the relationship between cost of activity and activity 17 Mixed costs a cannot be analyzed using scattergraphs b have a fixed component that is based on activity c are the same as step costs d change both in total and per unit as activity changes 18 Managers use cost behavior to predict how costs will change as the level of activity changes 19 Using the high low method the fixed cost is calculated a using either the high or low level of activity b before the variable cost is calculated c by adding the total cost to the variable cost d after the variable cost is calculated 20 Which of the following is not a method used to estimate the fixed and variable portions of mixed costs a High low method b Relevant range analysis c Scattergraph plot d Least squares regression 21 The high low method is based on the two most extreme periods of activity is difficult to apply and requires a statistical software package a b c uses only two data points d generally provides a good estimate of true fixed and variable cost behavior 22 may not represent the general trend in the data a Least squares regression b A scattergraph c The high low method 23 True of false Presenting fixed costs on an average per unit basis can be 24 In a least squares regression line the vertical intercept a of a line represents the total fixed cost 25 The value tells how much of the variability of y is explained by x misleading a R square b Scattergraph c Regression d Least squares 26 Mixed costs are also commonly known as semi variable costs 27 Full absorption costing is very useful for management decision making is required for external reporting a b c assigns all manufacturing costs to products d focuses on how costs behave 28 The best fitting line minimizes the sum of the squared lines when using least square regression a b the high low method c scattergraph analysis 29 JVL Inc sells its only product for 10 per unit Variable costs are 4 per unit and total fixed costs are 40 000 The company is currently selling 10 000 units per year How will profits change if sales increase by 1 500 units a 6 000 b 15 000 c 29 000 d 9 000 10 4 6 CM X 1 500 units 9000 30 When using the high low method if the high or low levels of cost do not match the high or low levels of activity a Choose the periods with the highest and lowest level of cost and thei b Skip that period and move to the next highest or lowest level where costs c Choose the periods with the highest and lowest level of activity and their associated activities and activity match associated costs 31 R square a b is usually provided by least squares regression software indicates the percentage of the variation in the independent variable activity that is explained by the dependent variable cost c measures goodness of fit d can be anything between 1 and 2 32 A non profit organization is trying to determine the fixed and variable costs of providing meals During the first six months of the year the following meals were served and the following costs were incurred Month Costs 5 200 January 5 700 February 4 100 March April 4 200 4 250 May June 5 550 Determine the total fixed cost and the variable cost per unit a Fixed cost 260 and variable cost per unit 3 20 b Fixed cost 1 450 and variable cost per unit 2 50 the high low Meals 1 500 1 700 1 200 1 100 1 150 1 650 method uses the highest and lowest level of activity not costs February 1 700 meals and 5 700 and April 1 100 meals and 4 200 are the high and low activity months 33 When using proper interpretation of the results is critical 34 R square is a measure of goodness of fit of a model 35 A limitation of is that it is subjective and inexact the high low method a b scattergraph analysis c least squares regression …